IRS Rule Alarms Tax-Exempt Groups

The Internal Revenue Service has issued a ruling that could end the tax-exempt status of hundreds of organizations that publicize the views of candidates for public office. Churches, environmental and social issue groups, as well as voter education organizations such as the League of Women Voters, could be affected by the new rule. Two of them - the league and the legal office of the U.S. Catholic Conference - already have sounded alarm bells about the IRS rule, which took effect May 1.

The rule applies to nonprofit regious, charitable and educational groups that are exempt from federal income tax. The rule bars them from polling candidates for public office and publishing their replies. Some tax attorneys here, concerned about the impact of the rule, think it eventually could be applied to tax-exempt public television and radio stations and prevent them from airing some political opinion types of broadcasts. Michael Sanders, chairman of the exempt organisations commitee of the American Bar Association's tax section, said his panel is examining the ruling because of concern over its impact.

"We are looking at it very closely," he said. "Personally, I think it is outrageous - it calls into question the status of every political education organization in the country."

George E. Reed, general counsel of the U.S. Catholic Conference, called the rule "extreme" and "inconsistent" with recent Supreme Court decisions which extend First Amendment protection even to commercial organizations engaged in political activity."

Reed and other attorneys here suggested that a court challenge to the new IRS position may be one recourse for the groups to which the rule will be applied.

The Rev. Dean M. Kelley, secretary for relious and civil liberties of the National Council of Churches, commented that "the limitations are primarily for the convenience of the holders of public office who would rather be spared the rigors of the democratic process."

He said he would welcome a court test of the ruling.

The argument involves the interpretation of a few words in the federal tax code - words which, until May 1, the IRS felt permitted the tax-exempt groups to publish the results of the questionnaires they send to candidates.

Such polling, particularly at the state and local level and in connection with congressional races, is a common activity of voter education and special interest organizations.

Perhaps the best known of the groups, the 135,000 - member League of Women Voters, has appealed to the IRS to defer the effective date of its ruling.

In the meantime, according to Peggy Lampl, executive director, the league has "frozen" all of its political opionion sampling around the country.

"We don't know how the ruling came about, but we are very concerned. We believe it could have a very deleterious effect and curtail a lot of the league's voter information service," Lampl said.

The tax code assures a tax exemption for groups involved in educational activity and do not participate in or intervene in any political campaign on behalf of or in opposition to any candidate.

Prior to May 1, IRS interpreted that to mean that questioning of candidates and publication of their responses - without any editorial comment - was legal.

The new rule, drawn up to apply to an organisation that the IRS will not name,reverses that.

"Notwithstanding the educational nature of the questionnaire activity, the organization's solictation and publication of candidates' views on topics of concern to the organization can reasonably be expected to influence voters to accept or reject candidates," the IRS ruled.

"The questionnaire activity is a paticipation and intervention in a political campaign and the organization is not operated exclusively for educational purposes."

Groups such as the League of Women Voters, which do take positions on political issues, get around the general rule by getting up educational arms that are tax exempt and to which contributions are deductible from individual donors' income taxes.

Several tax attorneys here expressed concern that the new rule, if carried to an extreme interpretation, could be used to prohibit the tax-exempt groups from publishing very basic data, such as the voting record of a public official.

"When I saw it, I thought it was extraordinary," said Thomas Filds of Tax Analysts and Associates. "It is so weird and so far-out that you wonder what is behind it."

"It should be seen as part of a larger picture - there is an attack by charities, business and some members of Congress on the IRS with respect to grass-roots political lobbying bars.

It is almost possible to tell what grass roots lobbying is, and that's the problem, "Fields added.

"There is a view that Congress is trying to stifle commentary and dissent and I think that some members of the House Ways and Means Committee are quite prepared to restrict and penalize comment."

Joel Thomas, counsel for the National Wildlife Federation, said his organization is not involved in candidate polling activities. But, he added, "I think the ruling is too bad. I am concerned if they intend to go any further with it."

John Burke, an attorney whose firm represents the League of Women Voters, said the IRS rule can have "a real chilling effect" on organizations attempting to get information about public issues to their members.

"Certain organizations are single-issue groups - say, the right-to-life - and I have no problem with the IRS rule as it might apply to them," he said. "But the ruling is overbroad. It appears they threw out the baby with the bathwater."

Burke and William Lehrfeld, another Washington tax attorney, speculated that the new rule could be applied to noncommercial public broadcasting outlets that air candidates' views outside the coverage of federal "equal-time" requirements.

The IRS ruling noted that free air time provided to candidates on an equal basis has been held not to be participation in political campaigns - thus assuring those broadcasters of continuing tax-exempt status.

"I think public broadcasting stations could be jeopardized," Lerfeld said. "If candidates are using that organization as a forum, even if they have equal time, it might be seen as a violation."

Added Burke: "The implication is that if the air time is required, then it would be an intervention in a campaign by a station broadcasting those views. The IRS rationale would let them apply the rule to broadcasting."